What are real estate capital gains?


Quick Answer

A real estate capital gain is the profit made when selling a piece of real estate, reports the IRS. It is calculated by subtracting the basis, or amount originally paid, from the amount for which the property is sold.

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Full Answer

Since the amount of capital gain determines whether homeowners pay taxes on real estate sales, it is important to figure in all improvements and expenses, reports Bankrate. When calculating the cost basis of real estate, homeowners should add in the price they paid for the home and any amounts paid for capital improvements, real estate agent commissions, escrow fees and other expenses accrued during purchase, states About.com. When figuring the amount the home is sold for, homeowners can deduct costs such as advertising, administrative costs, legal fees, real estate agent commissions, title insurance, and escrow and inspection fees, as reported by Nolo.

As long as the real estate being sold is a principle residence, and the homeowner has lived in it for at least two of the five pre-sale years, the capital gain on a home sale is entitled to a $250,000 exemption from taxes, according to Nolo. For married couples who file taxes jointly, the exemption is $500,000, as of 2015. Exceptions to the two-year residency rule include the sale of a home during a divorce, due to an employment change or a death in the family. The residency rule is also waived for those in the military who must move due to deployment or other service obligations, states Bankrate.

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